4.2 Guarantor Financial Statements

At the April 2007 SEC Regulations Committee joint meeting with the SEC staff, the staff indicated that if a registrant is required to provide Rule 3-16 financial statements for an affiliate, the registrant must also provide separate financial statements for significant equity method investees held by such an affiliate. The staff’s view is based on the intent of Rule 3-16, which is to provide investors with the information that would be required if the affiliate whose equity securities are pledged were a registrant. The staff clarified that the requirements for Rule 3-16 are not limited to presenting the affiliate’s primary financial statements.

The SEC staff also noted that a similar requirement would exist for subsidiary guarantors and issuers under Rule 3-10. If a registrant is required to provide Rule 3-10 financial statements for guarantors, it must also provide separate financial statements in accordance with Rule 3-09 for significant equity method investees held by the guarantors.

If a registrant includes financial statements under Rule 3-10, Rule 3-16, or both, the significance of an equity method investee of the guarantor or affiliate should be determined in relation to the guarantor or affiliate rather than in relation to the registrant.

In March 2020, the SEC issued a final rule that revises the disclosure requirements for certain registered securities under Rules 3-10 and 3-16 and introduces two new Regulation S-X rules: Rules 13-01 and 13-02. As a result of the amendments, there are fewer situations in which separate financial statements must be provided for guarantors or affiliates than there were under previous requirements. For more information about the final rule, see Deloitte’s March 10, 2020, Heads Up.